How to Utilize Your Budget to Get Out of Debt

Use your budget as a tool to pay off debt.

If you’re struggling with debt, you can use a simple budget to dig yourself out. Yes, a simple budget is a great way to deal with debt. It provides a framework that will guide you to eventually being debt-free. Here’s what you should know.

Review First

First, if you don’t have a budget, you need to make one. If you have one, revise it to prioritize debt payments. Here are some steps to get started:

• You can use a budget app to create a budget or do it manually.
• Focus on money coming in and money going out.
• Then, see where you can cut back spending to funnel toward debt payments. 

Pick Your Method

Now that you have your budget set up, it’s time to identify how to pay your debts. There are two main methods: The debt avalanche and the debt snowball. Here are the differences:

• Debt Avalanche. With a debt avalanche, you start by paying the debt with the highest interest rate first, then the next highest rate, and so on.
• Snowball Method. With this method, you pay the smallest debt balance first, then move on to the next smallest balance, and so on.

No matter what you pick, the most important thing is to choose a method that you’ll stick to.

Revise Your Budget

Once you choose your debt payment method, go back and look at your budget. Review it to make sure your chosen payment method will work in connection with your budget. If you need to make changes, make them immediately. 

Do One Thing: Choose a debt payment strategy that you are most likely to stick with over the long term.

 

The material provided on this page is for informational use only and is not intended for financial, tax or investment advice. VisionBank, PurposeBank and/or its affiliates assume no liability for any loss or damage resulting from one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional and tax advisor when making decisions regarding your financial situation.